Tax Guru – Ker$tetter Letter

While Federal individual income tax rates and brackets, as adjusted for inflation, are made public relatively early (9/23/04 for the 2005 rates), the California Franchise Tax Board takes its sweet time announcing theirs.  According to this article from CCH, the 2005 inflation adjusted rates have just been released.  I wasn’t able to find this on the FTB’s website, or even on Spidell’s.

Update: Spidell has produced a pdf document with the newly announced 2005 figures.

Many of us may have seen the following over the years; but it’s always nice to have it handy to balance out the left’s anti-taxcut propaganda.  Thanks to Virginia tax practitioner Len Boush for finding this on the Yahoo stock bulletin for H&R Block and passing it along.  

A LESSON IN TAXATION

Sometimes Politicians can exclaim; “It’s just a tax cut for the rich!!”, and it is just accepted to be fact. But what does that really mean?

Just in case you are not completely clear on this issue, we hope the following will help:

Tax Cuts – A Simple Lesson in Economics.

This is how the cookie crumbles. Please read it carefully.

Let’s put tax cuts in terms everyone can understand. Suppose that every day, ten men go out for dinner. The bill for all ten comes to $100.00. If they paid their bill the way we pay our taxes, it would go something like this:

The first four men (the poorest) would pay nothing.
The fifth would pay $1.00
The sixth would pay $3.00
The seventh $7.00
The eighth $12.00
The ninth $18.00
The tenth man (the richest) would pay $59.00

So, that’s what they decided to do

The ten men ate dinner in the restaurant every day, and seemed quite happy with the arrangement, until one day, the owner threw them a curve.

“Since you are all such good customers,” he said, “I’m going to reduce the cost of your daily meal by $20.00”

So, now dinner for the ten only cost $80.00. The group still wanted to pay their bill the way we pay our taxes. So, the first four men were unaffected. They would still eat for free. But what about the other six, the paying customers? How could they divvy up the $20.00 windfall so that everyone would get his “fair share”?

The six men realized that $20.00 divided by six is $3.33. But if they subtracted that from everybody’s share, then the fifth man and the sixth man would each end up being “PAID” to eat their meal.

So, the restaurant owner suggested that it would be fair to reduce each man’s bill by roughly the same amount, and he proceeded to work out the amounts each should pay. And so:
The fifth man, like the first four, now paid nothing (100% savings)
The sixth now paid $2.00 instead of $3.00 (33% savings)
The seventh now paid $5.00 instead of $7.00(28% savings)
The eight now paid $9.00 instead of $12.00 (25% savings)
The ninth now paid $14.00 instead of $18.00 (22% savings)
The tenth now paid $49.00 instead of $59.00 (16% savings)

Each of the six was better off than before. And the first four continued to eat for free. But once outside the restaurant, the men began to compare their savings. “I only got a dollar out of the $20.00”, declared the sixth man. He pointed to the tenth man “but he got $10.00!”

“Yeah, that’s right”, exclaimed the firth man. “I only saved a dollar, too. It’s unfair that he got ten times more than me!”

That’s true”! shouted the seventh man. “Why should he get $10.00 back when I got only $2.00?? The wealthy get all the breaks”!!

“Wait a minute”, yelled the first four men in unison. “We didn’t get anything at all.  The system exploits the poor”!!

The nine men surrounded the tenth and beat him up. The next night the tenth man didn’t show up for dinner, so the nine sat down and ate without him. But when it came time to pay the bill, they discovered something important. They didn’t have enough money between all of them for even half of the bill!!

And that, boys and girls, journalists and college professors, is how our tax system works. The people who pay the highest taxes are perceived to get the most benefit from a tax reduction. Tax them too much, attack them for being wealthy, and they just may not show up at the table anymore. There are lots of good restaurants in Europe and the Caribbean.

 

For obvious reasons, George Harrison’s song has been a big favorite of mine.  We’ve used excerpts of it in several of my audio and video recordings, usually as performed by George or the Beatles.  A few years back, I happened to see the bluegrass group Nickel Creek perform the song on PBS’s Austin City Limits show.  Since them, I have been looking for a copy of their version.  None ever show up via the file sharing services.  I even wrote to Nickel Creek, offering to pay for a copy of the song.  I never heard back from them.

Last week, PBS replayed that particular episode of Austin City Limits.  This time, I was ready with our new hard drive digital video recorder.  I recorded the show, and then made an MP3 file with just the TaxMan song.  It’s not necessarily better than the classic version of the song we all know so well.  It’s just an interesting interpretation. I have it on my website for non-commercial amusement purposes only. 

A Super-Charged Roth IRA – Gail Buckner on Roth style 401(k) plans

Energy Tax Incentives Act of 2005 – Summary of new law from QuickFinders

Pennsylvania Tax Protester Convicted for Not Filing Returns – Another tax protesting scammer, Larken Rose, may soon be residing in the old gray bar hotel.  It’s about time.  This scoundrel has been spouting his garbage for several years. 

Senators Say Study Indicates IRS May Be Wasting Millions on Training – Big news – a government agency wasting taxpayer dollars? 

Fortunately, everyone understands that the Times is nothing but a propaganda outlet for the DemonRats. Doing the opposite of what they advise usually works out the best.

For the past several years, I have been beta testing the upcoming versions of QuickBooks as they got the program ready for its annual release. For the 2006 version, Intuit is opening the doors to even more testers, as they hope to uncover more problems before releasing the final version to the public. For the first time that I can recall, they are also offering a prize to one of the 5,000 testers. 

Warning: The file that needs to be downloaded is 387 MB; so only apply if you have a good broadband internet connection.  In previous years, those of us without broadband had a choice to receive a CD-ROM of the program.   That’s not available this year.  We just had DSL service installed a few weeks ago; so I am going to give this download a try later tonight after my online radio shows are over.  

 Following is the email I received from Intuit announcing this opportunity.  

Subject: QuickBooks Test Drive Offer To Your Clients

(This email is being sent to you because you are a valued QuickBooks ProAdvisor(R)).

Dear Kerry Kerstetter,

Recently Intuit sent out an offer to a group of QuickBooks users encouraging them to test-drive the next version of QuickBooks (codenamed “Denali”) with a prize drawing as an incentive for participation.

You may have seen this email, or had inquiries about it from your clients. We have received questions about it, and want to assure you that this is a legitimate request from Intuit.  We are truly offering one lucky winner the option to choose from the list of prizes below.  We would appreciate it if you would participate in this test and forward this request to your clients encouraging them to participate too.  The first 5,000 participants will be entered in the drawing for the winner’s choice of prize mentioned below. If you have any questions, please feel free to contact Chris Rabourn at 650-944-2635.

Below is the original email:

Dear Kerry Kerstetter,

Welcome to the Denali 5000! “Denali” is the codename for our next version of QuickBooks, and we are asking 5000 of our QuickBooks drivers to take Denali ONCE around the track!  By participating in this test, you will _help us make QuickBooks better, get a sneak peek at the next version of QuickBooks, and have a chance to win your choice of a 7-day trip to Hawaii for two, a 42″ plasma TV or $2,000 in cash!

To participate in this test, you will need to download and install the Beta version of QuickBooks, update a copy of your current QuickBooks data file, do a few activities and then complete a short survey.  You will then uninstall the Beta version and continue using your existing version of QuickBooks.  For most participants, this will take 30 to 60 minutes.  In case you experience any difficulty, we will have a team of support engineers available to help you.

If you are interested in helping us with this field test, please click on the link below to complete an online Non-Disclosure Agreement for pre-release software.  You will then have access to The Denali 5000 website where you can download the software. Because of the large file size, high speed internet access is required. The Denali 5000 is open to current QuickBooks for Windows users only. The online survey is the official entry form for the sweepstakes drawing, and only the first 5,000 users who complete the online survey are eligible for the sweepstakes drawing.

Please copy this link into your browser: http://beta.intuit.com/D5KSU/default.html

Thank you for helping us make QuickBooks a better product for you and the millions of other QuickBooks users!

— The QuickBooks “Denali” Team

A single prize will be given away to one Grand Prize Winner. The Grand Prize Winner will select one of the following three prizes: a 42″ Plasma Screen Television, or a trip for two to Hawaii, or a cash prize of two thousand dollars ($2,000). To see the contest rules, please copy this link into your browser: http://beta.intuit.com/D5K/content/readme.cfm

Q:

Subject: Sale of Primary Residence question

I’ve pulled some valuable information off your site, and I thank you.

One thing that is not clear to me ~ If I sell my primary home which I have owned and lived in just 15 months, (and never rented) ~ what taxes will I be subject to?

I would greatly appreciate your clarification.  I understand what happens after two years, but it’s rather gray in that 1-2 year span.

Thank you,

A:

 It all depends on why you are selling before you have been in the home for the full 24 months.

If you have a qualifying reason, then you would be entitled to exclude approximately $156,250 of profit ($250,000 / 24 X 15).  Any profit above that would be taxed as long term capital gain.

If you don’t have a qualifying reason for moving out so soon, all of your profit will be subject to taxation as long term capital gain.

What you do with the sales proceeds will have absolutely no effect on this issue.

You can see more on this on my website. 

As always, you need to consult with a tax pro who can crunch your actual numbers to see how much, if any, tax you will have to pay on this sale.

Good luck.

Kerry Kerstetter